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Case study: Financial structuring for commercial real estate

Case study: Financial structuring for commercial real estate

Executive Director, Nick Terry presents a case study to highlight how appointing an independent real estate and corporate trust services provider to a distressed scenario can relieve pressure and mitigate any conflicts which may arise.

Commercial lenders, landlords and tenants are increasingly needing to reach arrangements and reschedule debt and/or interest payments as the financial implications of lockdowns and weakened economies intensify pressure on businesses.

Ocorian understand the challenges facing banks and other lenders working with real estate assets requiring financial restructuring, particularly as internal resources become stretched for lenders.

Ocorian have considerable experience in this area and the case study below highlights how our real estate and corporate trust debt restructuring teams ensured an effective outcome in a distressed scenario following the Global Financial Crisis in 2008 – many lessons of which are very relevant in today's circumstances.

Our client

A lender providing third-party debt for the redevelopment of an historic London train station/office space to a joint venture structure involving a Jersey Property Unit Trust (JPUT).

Challenges

The project suffered multiple loan covenant breaches following the 2008 Global Financial Crisis. Given the stage of development and the outlook for UK real estate at that time, seeing the project through to completion with subsequent letting up was most likely to allow for the greatest recovery of funds.

However, the lender lacked the corporate ability or desire to take the risk of directly holding an asset during the development and leasing phases. Furthermore, there was a value in maintaining the integrity of the Jersey ‘corporate wrapper’ within which the asset was held.

Solution

The restructuring arrangement saw the holders of the JPUT transfer their units to a new ‘orphan’ structure which was established and administered by Ocorian.

Ocorian was invited to participate by settling its own funds for the establishment of a charitable trust and a new wholly owned Jersey company, which in turn would hold all of the shares in a second Jersey company.

The two Jersey companies were then invited to acquire all of the units in the JPUT and the lender gifted the funds to the Jersey companies in order to facilitate the acquisition of those units.

Services included: Real estate fund administration, trustee and agency services (facility agent, security agent, private placement paying, transfer, calculation, listing agent and note, bond, share and successor trustee), corporate secretarial, SPV / SPC incorporation, administration and liquidation and directorships.

Results

This restructuring enabled the overall holding structure to be kept in good standing while the strategy of completing the development and letting-up of the building could be executed, thereby repaying as much of the debt as possible to the lender.

In 2017 the property was sold and the full amount of capital, interest and fees were repaid to the lender. In addition, surplus funds were distributed to the charitable trust which has since made donations supporting good causes globally.

Streamlining complexity

Our team, consisting of chartered surveyors, accountants, lawyers and company secretaries has deep experience of establishing and administering real estate structures for all types of institutional investors. Ocorian are able to combine experience of managing distressed real estate assets with cutting-edge technology systems and specialist software to deliver innovative and cost-effective solutions for structures of all sizes and across multiple locations.

To discuss how Ocorian can support your restructuring, SPV administration and real estate needs, get in touch with our team below.

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